Commerce Launches Section 232 Investigation into Rare Earth Permanent Magnets

Trade Update • September 24, 2021

The Commerce Department’s Bureau of Industry and Security on Friday announced that it has launched an investigation under Section 232 of the Trade Expansion Act of 1962, to determine the effects on U.S. national security from imports of Neodymium-iron-boron (NdFeB) permanent magnets.

The probe follows a recommendation made by the White House in a report on the administration’s 100-Day Review evaluating vulnerabilities within the supply chains of four critical products — semiconductors, large capacity batteries; critical minerals and materials; and pharmaceuticals — as called for by President Biden in an executive order last February.

Critical Materials

“Critical national security systems rely on NdFeB permanent magnets, including fighter aircraft and missile guidance systems,” Commerce states. Additionally, it notes such magnets are “essential components of critical infrastructure” (e.g., electric vehicles and wind turbines) in addition to also being used in a wide range of other applications such as computer hard drives, audio equipment, and medical devices.

In its review, the administration identified rare earth material supply chains as a critical concern after finding the U.S. to be “heavily dependent on imports” for NdFeB permanent magnets, which it describes as “building blocks of the products we use every day.”

Unfair Competition

According to the White House, the U.S. government “must implement a comprehensive strategy to push back on unfair foreign competition that erodes the resilience of U.S. critical supply chains and industries more broadly.”

Once a leader in the mining and production of rare earths, there is now just one active rare earth elements mine in the United States. Moreover, “the U.S. currently lacks the domestic capability to separate rare earth element concentrates into rare earth oxides and process them into rare earth metals at a commercial scale,” according to an Energy Department white paper published last year.

In 2020, China produced 85% of the world’s rare earths refined products and currently manufactures an estimated 90% of the world’s NdFeB permanent magnets.

Various factors in recent decades have contributed to China’s global dominance in the market for rare earths products, including its relative abundance of such minerals (an estimated third of the world’s total reserves), expansive production capacities, lower labor costs, and less stringent environmental regulations.

In 1990, the Chinese government declared rare earths a “protected and strategic mineral” and proceeded to control production and processing, introduced export quotas, and sought to dominate the supply chain for crucial applications such as NdFeB permanent magnets.

While China removed export quotas in 2015 after losing an appeal at the World Trade Organization, the country’s Export VAT Refund Scheme is now used to incentivize the domestic production and subsequent export of permanent magnets over rare earth materials (which don’t receive any tax refund, as opposed to 13% for magnets) while also providing Chinese manufacturers with a cost advantage.

Next Steps

Under the law, BIS has 270 days to conclude the investigation before Commerce must report the results to the president. If it finds that imports harm national security, it can recommend actions — including tariffs — to the president for a final decision, which must then be made within 90 days.

Meanwhile, BIS is inviting interested parties to submit written comments, data, analyses, or other information by November 12, 2021.

Click here for additional details about the comments Commerce is “particularly interested in” such as the “domestic production and productive capacity needed for NdFeB permanent magnets to meet projected national defense requirements.”